Monday, May 11, 2015

Analysis of Fresenius 2015

Business: A German health care holding and investment company: Since nothing has changed they still own fully or parts of: Fresenius Medical Care that work with dialysis, Fresenius Kabi treatment of chronically ill patients, Fresenius Helios having 110 hospitals and clinics (in Germany mainly) for acute treatment of patients, Fresenius Vamed helps with projects and management business of health care facilities and finally Fresenius Netcare the IT provider for the group.

Active: World wide via their holding companies. FMC in 40 countries, Kabi in around 60 countries, Vamed over 70 countries and Netcare in around 40 countries.

The P/E for Fresenius is very high with 28.2 and the P/B is also a bit too high with 3.2 which gives a no go from Graham. The earnings to sales looks to me a bit low with only 5% and the ROE is also nothing to dance the jingle over with its 11.4%. The book to debt ratio I also find low with 0.4.
In the last five years they have had an excellent yearly revenue growth rate of 7.8%! This then gives us a motivated P/E of 20 to 24 which means that Fresenius is today only slightly overvalued by the market.
The spend around 35% of their earnings into research and development which I find to be a healthy number to keep succeeding also in the future.
The pay a puny dividend of 0.8% so... they might as well skip that... the only good news is that it only correspond to 22% of their earnings so no reason to decrease it.

Conclusion: Graham says no and so do. Fresenius has a too high P/E and P/B. The ROE is too low and the dividend payment is far, far too low. As a remark though... Fresenius is well placed for the long run with their massive push into healthcare. That they also use a strategy of splitting their shares when the share price is high usually leads to more trades and high share price. That they in the future can sell off holdings just like they have done with FMC is also something that one should keep in mind.